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South Africa: Understanding the basics of the Competition Amendment Bill

Fasken
Reading Time 4 minute read

Significant amendments proposed to the South African Competition Act

On 1 December 2017, the Ministry for Economic Development published a first draft of the Competition Amendment Bill, along with an explanatory background note.

The Bill proposes some significant changes which fundamentally alter the scope of South Africa’s competition law, and the powers of the competition authorities.  Each proposed change is a subject for discussion and analysis on its own, which will be explained in a series of updates and articles over the coming weeks.  This note sets out a high level summary of the main features which you need to know about.

The amendments have been proposed to redress “excessive concentrations of ownership and control within the national economy” and to open “the South African economy to a greater number of South Africans through ownership and opportunity”, while recognizing that economies of scale are critical for the efficient functioning of some markets.

The five key priority areas of the Bill are:

- Strengthening the provisions of the Act relating to prohibited practices and mergers;  

- Considering the impact of anti-competitive conduct on small businesses and firms owned by historically disadvantaged persons (HDPs);

- Strengthening the provisions of the Act relating to market inquiries to effectively address anticompetitive market features and conduct;

- Promoting the alignment of competition-related processes and decisions with other public policies, programmes and interests; and

- Enhancing the administrative efficacy of the competition regulatory authorities and their processes.

If the Bill was passed in its current form, the amendments to the Act would include:

Market Inquiries:    

- The proceedings during market inquiries would be focused on categories of market features a) market structure, b) observed market outcomes, and c) conduct—that would have an “adverse effect” on competition.

- A market inquiry would be limited to a period of 18 months, with an extension of a reasonable period if required.

- Critically, the Competition Commission would be able to take any remedial actions that it considers to be reasonable and practicable, with the exception of divestiture, which can only be imposed by the Tribunal. The Commission’s findings and actions will be binding, unless challenged in the Tribunal.    

Merger control:    

- The Commission would be required to consider cross-shareholdings and cross-directorships in all mergers and the merging parties would need to disclose their merger activity in the past three years (even where the mergers were not notifiable).

- There would be specific provision for the depth and breadth of conditions relating to a merger. The Commission or  Tribunal would be empowered to make any appropriate order relating to a merger, including imposing conditions relating to employment, small businesses and firms owned or controlled by HDPs.

Collusion:

- The allocation of market shares would be per se (outright) prohibited.

Abuse of Dominance:

- Excessive Pricing: The evidentiary burden would be reallocated, and the burden would be on the dominant firm to show that its price is reasonable after the Commission has established a prima facie case against it.

- Predatory Pricing: The scope of possible cost benchmarks would be widened to include average avoidable cost and long run average incremental cost, in order to allow for a more accurate assessment of exclusionary behavior.

- Margin Squeeze: This practice would be included in the list of specific exclusionary acts.

- Monopsony Pricing: A customer that enjoys significant buyer power over its suppliers would be prevented from abusing its dominance.

Administrative Penalties:

- While the Act currently provides for a “yellow card” (no penalty for a first-time contravention) for certain conduct, the amended Act would make all contraventions subject to a penalty.

- An administrative penalty would be extended to other firms that form a single economic entity with the contravening firm. In other words, where one entity within a corporate group contravenes the Act, a penalty of up to 10% of the entire group’s turnover could be imposed.

Price Discrimination:

The burden of proof would be adjusted so that a dominant firm would need to show that price discrimination is not likely to prevent or lessen competition. Emphasis would be placed on the effect of price discrimination on small businesses or firms owned or controlled by HDPs.

Exemptions:

The grounds on which an exemption may be granted would include the economic development of an industry.

Involvement of the Minister:

- The Minister and the Commission would have a right of appeal against any decision of the Tribunal.

- The Minister would have a right of access to confidential information, subject to the confidentiality provisions of the Act. Other Ministers or regulatory authorities involved in the proceedings would also have this right, although the Tribunal may override it.

In addition to the above amendments, the Bill proposes extending the Commission and Tribunal’s powers relating to their internal processes.

The Bill is expected to result in extensive debate and submissions from a wide range of stakeholders, who have 60 calendar days (until 29 January 2018) to provide commentary on the Bill.